LendingClub (LC) shares rose sharply Friday on a report that Citigroup (C) may step in to help the online marketplace reverse a persistent share selloff by restoring investor confidence. Shares were up 13% to about $4.94 as of midday trading Friday but are down 55% on the year.
Having a partner in one of the Big Four U.S. banks would be particularly beneficial for Lending Club, as the peer-to-peer lender just lost two of its principal investors this month, Goldman Sachs (GS) and Jefferies.
According to BTIG analyst Mark Palmer, LendingClub has been "in survival mode" and the prospect of new capital could meaningfully benefit shareholders by extending its runway in paying down its roughly $4.6 billion debt load, which is up 64% since the end of 2014. Meanwhile, total assets of $5.8 billion have climbed 49% over the period.
Palmer also noted that the report of Citi being "productively engaged" with LendingClub as a potential loan buyer, which was published in the Wall Street Journal late Thursday, is "an important initial sign of financing support" for LendingClub, but that it is unclear whether Citi plans to purchase loans through LendingClub's online platform or provide direct capital financing.
Goldman and Jefferies' exit from their partnership with LendingClub came earlier this month, shortly after the abrupt resignation of former CEO Renaud Laplanche, which followed LendingClub's announcement that the dates on $22 million of loan buybacks had been improperly adjusted.
But Citigroup's reported partnership seems to fall right in line with acting CEO Scott Sanborn's principal goal of restoring investor confidence in LendingClub's online platform, which aims to directly connect borrowers and lenders to cut out traditional banking fees.
However, as Palmer noted, new partnerships may come at a hefty price tag, as LendingClub will likely be in a disadvantageous seat at the bargaining table in light of the recent investor pullback.
Palmer said in a recent report that LendingClub may include "significant inducements" to new investors, which "is likely to take the form of higher interest rates, which may serve to erode the company's margins in the near term but may be necessary to get the company back on track."
